BRIC Investing: China

Telecommunications

A common theme of each BRIC nation is the need for greater and more efficient infrastructure. China Mobile Ltd. (CHA) capitalizes on this need by offering local- and long-distance service as well as internet access to a rising population. The company lists nearly 400 million subscribers and maintains approximately 70% of the market share in China. CHA also yields a 2.2% dividend. If these stats alone are not enough to merit a second glance, maybe this one will: This quarter, the company reported a 51% increase in profit. The Chinese economy may be peaking, but if CHA can hold its domestic market share and expand overseas, its long-term outlook is excellent. The stock, listed on the NYSE, is trading at the low end of its 52-week range.

Energy

Like Brazil and Russia, China is another BRIC nation rich in commodities. While YZC digs for coal, PetroChina (PTR) searches for oil and natural gas. As the middle-class in China increases, so does the number of people who drive cars. Much of the surge in the global demand for gas is a direct result of this massive demographic. PTR holds a majority share of the oil reserves in the country and will be a key provider for years to come. The company currently yields a lucrative 3.8% dividend and is trading near its 52-week low.

Exchange-traded funds

One of the easiest ways to invest in any BRIC market is to buy shares of an Exchange-traded fund (ETF). The SPDR S&P China (GXC) is one of the more diversified of China’s ETFs, with a total of 342 components. Three of its top 10 holdings are PetroChina, China Mobile Ltd., and Yanzhou Mining Co. Ltd. The fund is weighted heavily in financial services (30%), energy (18%) and telecommunications (19%). However, like the other China ETFs, GXC is only allowed to trade stocks of companies that China permits foreigners to own, limiting the possibility of complete diversification.

投資在瓷

The drawbacks to investing in China include the lack of analyst coverage and general secrecy of corporate financial reports. Add in to the equation a volatile political regime, a high rate of inflation and a broken banking system and the idea of investing there sounds daunting. But many of China’s problems are being actively addressed by the government and are short-term issues. If you are willing to place odds on the long-term success of its economy, then now could be a good entry point, while the market is down.